2. Profitability

Every business aims to make profit but if your stock’s company is unable to earn even a marginal profit, then you must look for some better investment options. Even if your company strives to improve its number of sales but fails to achieve higher profit, there can be something flawed with its business.

Devang Mehta, Vice-President and Head–Equity Advisory, Anand Rathi Financial Services says, “It is important to look at the operating profit, which indicates if the company is making money through business operations, as it can bump up the net profits by selling assets or other activities.”

3. Cash Flows

Any business who calls for public investment, should generate cash to gives better returns to its investors. Like profits, cash generation is also very essential for a company to run its business. You can make a sound investment decisions if know how to distinguish between profits and cash generation. U.R. Bhat, Managing Director, Dalton Capital Advisors, “One should always be careful about rising receivables and see the cash flows as some companies may declare profits, but may not be able to convert it into cash”, states Linemint.

There can be a possibility of a company booking revenues and showing profits but may not be able to generate cash. For instance if a company delivers its good and agrees to take payment on a later date, then the company will need a working capital. The worst will happen when the company does not receive cash payment in the future.

Also Read: How Rupee Fall Influences Your Investment?